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Income Tax Officer-25 (3) (5) , Mumbai Versus M/s. The Presidency Co-op Hsg. Soc. Ltd.

2017 (12) TMI 657 - ITAT MUMBAI

Addition on account of transfer fees and premium received from members on utilization of Transfer of Development Rights - concept of mutuality - Held that:- Issue relating to taxability of the amount of trans charges is squarely covered in favour of the assessee by the decision of Hon’ble Bombay High Court in assessee 's own case for the previous years wherein the decision of the Tribunal holding that voluntary contribution received by the assessee society from its members as transfer charges is .....

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, Accountant Member: This is an appeal filed by the Revenue against the order of CIT(A) for the assessment year 2007-08. 2. The grievance of Revenue relates to deleting addition of ₹ 7,64,271/- made by AO on account of transfer fees and addition made on account of premium received by assessee from its members on utilization of Transfer of Development Rights. 3. The rival contentions have been heard and records perused. 4. Facts in brief are that the assessee society is a Cooperative Housin .....

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ceived contribution from its members. The assessee Society had offered the aforesaid receipt as income and filed the return of income on 31st Ocother, 2007. However during the course of the assessment proceedings the assessee society filed a revised computation before the Assessing Officer vide letter dated 02nd December, 2009 and claimed the aforesaid receipt as exempt based on Principal of Mutuality. However the Assessing Officer did not accept the revised claim filed by the assessing society .....

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During the year under the assessee society has received an amount of ₹ 7,64,271/- on account of transfer of the plots in the society as contribution from its members. Further the assessee society has also received an aggregate amount of ₹ 26,80,203/- as contribution from its members pursuant to the construction on Plots using Transfer of Development Rights (TDR). The said TDR rights have been acquired by the members directly and the Society has received contribution from its members .....

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ncome as per the original return filed. 5.3 The appellant has filed appeal before the CIT (A), the same was dismissed in appeal vide order dated 23rds November, 2011,The Assessee Society further filed an appeal before the Hon'ble ITAT. The Hon'ble ITAT Bench 'C' vide its order dated 16th May, 2014 No. ITA-4051/M/2011 has restored the matter with CIT(A) to decided afresh based on the merits and after taking into consideration the various relevant decisions of the Tribunal. 5.4 Dur .....

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y the members of the society. Since the contributors to the fund and the participants thereof are both members of the society the test of mutuality being the complete identity of the contributors with the participants is clearly established and the principle of mutuality is applicable to the society. 5.5 The cardinal requirement for application of the doctrine of mutuality is that all the contributors to the common fund must be entitled to participate in the surplus and that all the participator .....

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ust be an identical body. That does not mean that each member should contribute to the common fund or that each member should participate in the surplus or get back from the surplus precisely what he has paid. What is required is that the members as a class should contribute to the common fund and participators as a class must be able to participate in the surplus. 5.6 The Hon'ble Bombay High Court in the case of Sindh Co-operative Housing Society vs. ITO 317 ITR 47 (Born) is held that the c .....

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the amount is received from an incoming or outgoing member. 5.7 Following the order of the jurisdictional Bombay High Court / the Hon'ble ITAT Bench 'F' in its order dated 22nd October, 2010 in case of Friends Co-operative Housing Society Limited for AY 2004-2005 has held that the transfer fees is exempt from tax on the basis of principle of mutuality. The appellant relies on the order of the Hon'ble ITAT Bench 'B' in case of Nutan Laxmi Co-operative Housing society Limit .....

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charges is squarely covered in favour of the assessee by the decision of Hon ble Bombay High Court in assessee 's own case for the 4earier years wherein the decision of the Tribunal holding that voluntary contribution received by the assessee society from its members as transfer charges is not liable to tax on the basis of principle of mutuality was upheld by the Hon ble Bombay High Court in IT Appeal 3345 of 2010 (dated 6th July, 2011) following its earlier decision rendered in the case of .....

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use of TDR. The assessee has claimed that the aforesaid contribution is not chargeable to tax. The Contribution from members is exempt from the tax under the Principle of Mutuality. The aforesaid contributions have been received from the members of the Society incidental to the use of the T.D.R. on their respective plots. The contributing members continue to be the members of the Society even after such contribution. The persons entitled to the benefit of the aforesaid contribution are also all .....

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following the decisions of the Bombay High Court in the case of New Sindh Cooperative Housing Society Limited 317 ITR (47) BOM and Mittal Court Premises CHS Limited 321 ITR 414, The relevant part of the decision of Sindh Cooperative Society Ltd are as under:- In the Sing Co-operative Housing Soc. (supra) it has been held as under (Placitum 44-46, page 62-63 of3l 7 ITR): Let us now apply the various tests which are to be considered fir applying the principle of mutuality to a case of a co-operati .....

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ivileges, advantages and conveniences. In the case of a co-operative housing society the only activities which it can carry out in terms of its bye laws are basically maintenance of its property which includes building or buildings. The subscription and/or contributions received by the members can only be expended for the purposes of maintenance and providing other privileges, advantages and conveniences to its members in terms of its bye-laws. Another test of mutuality is thus satisfied. (3) Ar .....

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4) Do the members have the right to share in the surplus and do they have a right to deal with its surpluses. In terms of the by laws it is only the members who have a right to share in the surplus. Under the Maharashtra Co-operative Societies Act, no part of the funds, as provided in section 64 can be paid by way of bonus of dividend or otherwise distributed among its members except as provided therein. Under section 67, there is a limit on the dividend to be paid on liquidation Under section 1 .....

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is satisfied. Once these tests are satisfied, in our opinion, there can be no doubt that the principle of mutuality will apply to co-operative housing society which has as its predominant activity, the maintenance of the property of the society which includes its buildings or buildings and as long as there is no taint of commerciality, trade or business. For all the aforesaid reasons, the questions as framed will have to be answered in favour of the assessee and against the Revenue. In the abse .....

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wever, The said issue has already been decided in favour of the appellant by the Hon'ble ITAT in the assessee's own case vide Order dated 30th March, 2011 in ITA No, 3440M 2005 for A.Y.2001-02 and Order dated 26th April, 2011 ITA No. 1953 to 1957/M/2010 for Assessment Years 1990-91, 1992-93, 1995-96, 1999-2000 and 2004-05 respectively. However, in the appellant's own case the CIT Appeals - 32, Mumbai, has decided the similar issue that TDR premium received from members as exempt from .....

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asons. (a) That it is not tainted with commerciality, rather fails under the concept of mutuality. Therefore, not liable to be taxed. (b) That under the cannons of taxation, the receipts which are a capital nature are not exigible to tax In the case of the appellant the impugned receipts arising on account of premium on TDR i purely a capital receipt and therefore, outside the purview of tax charge. (c) That it cannot be taxed u/s.45 as no Capital Gains could be levier on this right having no co .....

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tuality has been dealt with in detail. I have considered the arguments of the appellant and have carefully gone through the judgment cited above. Respectfully following the judgment of Singh Co. Op. Hsg. Society Limited (317 ITR 47), it is held that the amount received by the appellant of ₹ 50,40,775/- as premium towards usage of transferable development rights is not taxable in the hands of the appellant on the grounds of mutuality. Accordingly, ground No. 3 of the appeal is allowed. 6.2 .....

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